Judgment summary
This case concerns a request for a preliminary ruling from the Verwaltungsgerichtshof (Supreme Administrative Court, Austria), made by decision of 28 May 2025 and received on 10 June 2025, regarding the interpretation of Article 2(1)(a) and Articles 16 and 19 of Council Directive 2006/112/EC (the VAT Directive) (1).
The dispute arose between FR, who operated an individually owned undertaking, and the Finanzamt Österreich (Tax Office, Austria) concerning the VAT treatment of a contribution of immovable properties to a limited liability company (2).
The General Court answered four referred questions, addressing them in the order of the third, fourth, first and second questions.
Background
FR managed an individually owned undertaking whose assets included several buildings that were let subject to VAT, and in respect of which input VAT had been deductible (15).
By a 2007 contribution-in-kind contract, FR contributed these properties, without receiving new shares, to R GmbH, a limited liability company of which he was sole shareholder and manager (16). R GmbH continued to let the buildings, with that letting remaining subject to VAT (16).
The contribution contract stipulated that it was carried out under the scheme in the Umgründungssteuergesetz (Law on Reorganisation Tax, 'UmgrStG'), which excludes any charge to VAT by classifying the transaction as a transfer of a totality of assets within the meaning of Article 19 of the VAT Directive. FR accordingly declared the contribution as not a taxable transaction (17).
By decision of 8 June 2009, the tax authority instead subjected the contribution to VAT for 2007, treating it as an exchange for the grant of shares. It found no 'totality of assets' under Paragraph 12(1) and (2)(1) of the UmgrStG, because FR's activity generated asset management income (letting, leasing and management income) rather than commercial income within the meaning of Paragraph 2(3) of the 1988 Law on Income Tax. The tax authority also adjusted the input VAT deduction under Paragraph 12(10) and (11) of the UStG 1994 (18).
FR's action before the Bundesfinanzgericht (Federal Finance Court) succeeded only as to the amount of the adjustment; that court agreed there was no transferable 'totality of assets', but held, because the letting was subject to VAT, that the contribution had altered the circumstances relevant to the input VAT deduction (19).
FR then brought an appeal on a point of law before the Verwaltungsgerichtshof (Supreme Administrative Court), which referred four questions to the Court of Justice under Article 267 TFEU (20, 23).
Core dispute
The referring court sought clarification on three matters. First, whether the in-kind contribution of immovable property to a company, without any new shares being issued, is a transaction subject to VAT, either as a supply of goods for consideration under Article 2(1)(a) of the VAT Directive, or as a deemed supply under Article 16 (22).
Second, whether the 'no-supply rule' in Article 19 of the VAT Directive, under which no supply of goods is treated as having taken place on the transfer of a totality of assets or part thereof, may be limited by a Member State to transfers of business assets used to generate only certain categories of income (22).
Third, whether Article 19 of the VAT Directive has direct effect, so that a taxable person could rely on the no-supply rule against the tax authority even though Austria's pre-accession legislation restricted that rule to certain specific cases (22).
Court findings
On the third question, the Court held that Article 19 of the VAT Directive precludes national legislation that restricts the no-supply rule solely to transfers of certain business assets or parts of a business intended to generate certain types of income, unless the restriction is justified under the second paragraph of Article 19, which is exhaustive as to the permissible grounds for restriction (25-35).
On the fourth question, the Court held that the first paragraph of Article 19 of the VAT Directive has direct effect. A taxable person may rely on the no-supply rule against the competent tax authority where, before the Member State's accession to the European Union, the national legislature had opted to apply that rule but restricted its scope to specific cases not covered by the second paragraph of Article 19 (36-48).
On the first question, the Court held that Article 2(1)(a) of the VAT Directive does not apply, because the contribution of developed, VAT-let properties to an undertaking of which the taxable person is sole shareholder, without any new shares granted as consideration, lacks the reciprocal performance required for a 'supply of goods for consideration' (49-54).
On the second question, the Court held that such a contribution instead falls within the first paragraph of Article 16 of the VAT Directive, as an application of business assets transferred free of charge or for purposes other than those of the business, to be treated as a supply of goods for consideration, given that the transfer was free of charge and the input VAT on the properties had been deducted (55-59).
Outcome
The Court ruled, in answer to the four questions referred: Article 19 of the VAT Directive precludes national legislation restricting the no-supply rule solely to transfers of certain business assets or parts of a business intended to generate certain types of income, unless justified under the second paragraph of Article 19.
The first paragraph of Article 19 has direct effect, allowing a taxable person to rely on the no-supply rule against the tax authority in the circumstances described.
Article 2(1)(a) of the VAT Directive does not treat the contribution described as a supply of goods for consideration.
The first paragraph of Article 16 of the VAT Directive does treat that contribution as an application of business assets to be treated as a supply of goods for consideration.
As the case was a step in proceedings pending before the referring court, the decision on costs was left to that court (60).
Major issues / areas of contention
- Whether an in-kind contribution of let, VAT-deductible immovable property to a wholly-owned company, without issuance of new shares, constitutes a 'supply of goods for consideration' under Article 2(1)(a) of the VAT Directive.
- Whether such a contribution instead falls to be treated as a deemed supply under Article 16 of the VAT Directive as an application of business assets for purposes other than the business or a disposal free of charge.
- Whether Article 19 of the VAT Directive permits a Member State to restrict the 'no-supply rule' for transfers of a totality of assets to only those assets generating certain categories of income under national income tax law.
- Whether the first paragraph of Article 19 of the VAT Directive has direct effect, allowing a taxable person to invoke it against the tax authority despite a restrictive pre-accession national implementation.